Per unit price or other underlying
value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth
the amount on which the filing fee is calculated and state how it was
determined):

(4)

Proposed maximum aggregate value of
transaction:

(5)

Total fee paid:

o

Fee paid previously with preliminary
materials.

o

Check box if any part of the fee is
offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing
for which the offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the date of its
filing.

The annual meeting of the shareholders of Appliance Recycling Centers
of America, Inc. will be held on Thursday, May 15, 2008 at 3:30 p.m.,
at the Appliance Recycling Centers of America, Inc. corporate offices
located at 7400 Excelsior Boulevard, Minneapolis, Minnesota 55426. At the meeting, shareholders will act on the
following matters:

·Proposal One:
The election of five directors to serve for a term of one year expiring at the
2009 annual meeting of shareholders.

·To transact such other business as may properly come before the annual
meeting or any adjournment or postponement of the meeting.

Only shareholders of record at the close of business on March 14,
2008 are entitled to notice of and to vote at the annual meeting and any
adjournment or postponement of the meeting.

Each of you is invited and urged to attend the
annual meeting in person if possible.
Whether or not you are able to attend in person, you are requested to
date, sign and return promptly the enclosed proxy in the envelope enclosed for
your convenience or vote your proxy by using our internet voting service at http://www.eproxy.com/arci/.

This proxy statement contains information relating to the annual
meeting of shareholders of Appliance Recycling Centers of America, Inc.
(the Company) to be held on Thursday, May 15, 2008, beginning at 3:30 p.m.,
at the corporate offices of the Company, located at 7400 Excelsior Boulevard,
Minneapolis, Minnesota 55426. The
enclosed proxy is solicited on behalf of the Board of Directors of the Company
for use at the 2008 annual meeting of shareholders and any adjournment or
postponement of the meeting. The
approximate date on which this proxy statement and form of proxy will first be
sent or given to shareholders is April 15, 2008.

ABOUT THE MEETING

At the Companys annual meeting, shareholders will act upon the matters
described in the accompanying notice of annual meeting of shareholders. This includes the election of five
directors. In addition, the Companys
management will report on the performance of the Company during the 2007 Fiscal
Year and respond to questions from shareholders.

Only shareholders of record of outstanding common stock of the Company
at the close of business on the record date, March 14, 2008, are entitled
to receive notice of and to vote at the meeting, or any postponement or
adjournment of the meeting. Each
outstanding share of common stock entitles its holder to cast one vote on each
matter to be voted upon.

The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of the common stock of the Company outstanding on the record
date will constitute a quorum. A quorum
is required for business to be conducted at the meeting. As of the record date, 4,565,777 shares of
common stock of the Company were outstanding.
If you submit a properly executed proxy card or vote your proxy by using
the internet voting service, even if you abstain from voting, you will be
considered part of the quorum.

Sign and date each proxy card you receive and return it in the prepaid
envelope or vote using our internet voting service. If you return your signed proxy card or vote
using our internet voting service but do not mark the boxes showing how you
wish to vote, your shares will be voted FOR all
nominees in Proposal 1.

The Boards recommendations are set forth after the description of the
proposal in this proxy statement. In
summary, the Board recommends a vote:

·FOR the election of each of the nominated
directors (see Proposal 1 on page 5).

If you submit your proxy card or vote by internet, then unless you give
other instructions on your proxy card or your internet vote, the persons named
as proxy holders on the proxy card will vote in accordance with the
recommendations of the Board.

With respect to any other matter that properly comes before the
meeting, the proxy holders will vote as recommended by the Board or, if no
recommendation is given, in their own discretion.

For Proposal 1, the election of directors, each shareholder will be
entitled to vote for five nominees and the five nominees with the greatest
number of votes will be elected.

With respect to any other matter that properly comes before the
meeting, the affirmative vote of the holders of a majority of the shares of
common stock represented in person or by proxy and entitled to vote on the
proposal will be required for approval.
A properly executed proxy marked ABSTAIN with respect to any proposal
will not be voted, although it will be counted for purposes of determining
whether there is a quorum. Accordingly,
an abstention will have the effect of a negative vote.

If you hold your shares in street name through a broker or other
nominee, your broker or nominee may not be permitted to exercise voting
discretion with respect to the proposal to be acted upon. Thus, if you do not give your broker or
nominee specific instructions, your shares may not be voted on

2

the proposal and
will not be counted in determining the number of shares necessary for approval
of the proposal. Shares represented by
such broker non-votes will, however, be counted in determining whether there
is a quorum.

If your shares are registered differently and are in more than one
account, you will receive more than one proxy card. To ensure that all your shares are voted,
sign and return all proxy cards or use the internet voting service for each
proxy card. We encourage you to have all
accounts registered in the same name and address (whenever possible). You can accomplish this by contacting our
stock transfer agent, Wells Fargo Shareowner Services, at 1-800-468-9716.

Although we do not know of any business to be considered at the 2008
annual meeting other than the proposals described in this proxy statement, if
any other business is presented at the annual meeting, your proxy gives
authority to Edward R. Cameron and Denis E. Grande to vote on such matters at
their discretion.

To be considered for inclusion in the Companys proxy statement for the
Companys annual meeting to be held in 2009, shareholder proposals must be
received at the Companys offices no later than December 16, 2008. Proposals must be in compliance with Rule 14a-8
under the Securities Exchange Act of 1934, and must be submitted in writing and
delivered or mailed to the Companys Secretary, at Appliance Recycling Centers
of America, Inc., 7400 Excelsior Boulevard, Minneapolis, Minnesota 55426.

Under Rule 14a-4(c)(1), any shareholder who wishes to have a
proposal considered at the 2009 annual meeting of shareholders, but not
submitted for inclusion in the Companys proxy statement, must set forth such
proposal in writing and file it with the Secretary of the Company no later than
March 1, 2009. Failure to notify
the Company by that date would allow the Companys proxy holders to use their
discretionary voting authority (to vote for or against the proposal) when the
proposal is raised at the annual meeting without any discussion of the matter
being included in the Companys proxy statement.

The expense of the solicitation of proxies for this annual meeting,
including the cost of mailing, has been or will be borne by the Company. Arrangements will be made with brokerage
houses and other custodian nominees and fiduciaries to send proxies and proxy
materials to their principals and the Company will reimburse them for their
expense in so doing. In addition to
solicitation by mail, proxies may be solicited by telephone, telegraph or
personally by certain of the Companys directors, officers and regular employees,
without additional compensation. No
proxy solicitors have been hired in connection with the annual meeting.

3

COMMON STOCK OWNERSHIP

Beneficial
Ownership of Common Stock

The following table sets forth as of March 14, 2008 the beneficial
ownership (which includes shares which may be acquired in the next 60 days
through the exercise of options or warrants) of common stock by each of the
Companys directors, including director nominees, each of the executive
officers named in the Summary Compensation Table on page 12 (the Named
Executive Officers), and all directors, director nominees and executive
officers of the Company as a group, as well as information about beneficial
owners of 5% or more of the Companys common stock. Unless otherwise noted, each person or group
identified has sole voting and investment power with respect to the shares
shown.

Beneficial
Owner

Position with Company

Number of Shares
Beneficially Owned (1)

Percent of
Outstanding (2)

Directors and executive
officers:

Edward R. Cameron (3)

Chairman of the Board,
President and Chief Executive Officer

325,689

7.1

%

Duane S. Carlson (4)

Director

26,875

0.6

%

Morgan Wolf (4)

Director

6,909

0.2

%

Albin S. Dubiak (4)

Director

12,500

0.3

%

Thomas F. Hunt

Director

0

0.0

%

Glynnis Jones

Director

12,949

0.3

%

All directors and executive officers as a group (10
persons) (4)

388,687

8.5

%

Other 5% shareholders:

Perkins Capital Mgmt. Inc. (5)

621,804

13.6

%

Medallion Capital, Inc. (6)

516,000

11.3

%

(1)Unless otherwise noted, each person or
group identified possesses sole voting and investment power with respect to
such shares.

(2)Applicable percentage of ownership is
based on 4,565,777 shares of common stock outstanding as of March 14, 2008
plus, for each shareholder, all shares that such shareholder could purchase
within 60 days upon the exercise of existing stock options.

(4)Includes shares which could be purchased
within 60 days upon the exercise of existing stock options or warrants, as
follows: Mr. Carlson, 22,500
shares; Mr. Dubiak, 12,500 shares; Mr. Wolf, 2,500 shares; and all directors
and executive officers as a group, 2,500 shares.

(5)According to a Schedule 13G filed January 18,
2008, Perkins Capital Management, Inc. (Perkins Capital) beneficially
owned 621,804 shares of common stock as a result of serving as investment advisor
to various clients. Perkins Capital has
sole dispositive power as to all 621,804 shares and sole voting power as to
504,829 shares. The address for Perkins
Capital is 730 East Lake Street, Wayzata, Minnesota 55391.

(6)According to information provided to the
Company, Medallion Capital, Inc. (Medallion) has sole dispositive power
and sole voting power as to all 516,000 shares.
The address for Medallion is 3000 West County Road 42, Suite 301,
Burnsville, Minnesota 55337.

Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires the Companys officers and directors, and persons who own
more than 10% of a registered class of the Companys equity securities, to file
reports of ownership on Form 3 and changes in ownership on Form 4 or Form 5
with the SEC. Such officers, directors
and 10% stockholders are also required by SEC rules to furnish the Company
with copies of all Section 16(a) forms they file.

Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that, during the fiscal year ended December 29, 2007, all Section 16(a) filing
requirements applicable to its officers, directors and 10% stockholders were
timely complied with, except that the following reports were filed late: Form 4
reporting a stock option exercise and sale by Mr. Cameron; Form 4
reporting a sale by Mr. Bednarczyk; four Forms 4 reporting stock option
exercises and sales by Mr. Carlson; and a Form 3 reporting initial
ownership by Mr. Wolf.

PROPOSAL ONE  ELECTION OF DIRECTORS

The property, affairs and business of the Company are managed under the
direction of the Board of Directors. A
board of five directors is to be elected at the meeting. Unless otherwise instructed, the proxy
holders will vote the proxies received by them for managements five nominees
named below. The term of office for each
person elected as a director will continue until the next annual meeting of
shareholders and until a successor has been elected and qualified, or until
such director is removed or resigns.
Albin S. Dubiak, who has been a director since 2005, will be retiring
from the Board as of May 15, 2008 and is not standing for reelection.

All of the nominees named below are presently directors of the Company
and have served continuously since the year indicated. All nominees have indicated a willingness to serve
if elected. The Company knows of no
arrangements or understandings between a nominee and any other person pursuant
to which the nominee has been selected as a director.

All shares represented by proxies which have been properly executed and
returned or properly voted using the internet voting service will be voted for
the election of all of the nominees named below, unless other instructions are
indicated thereon. In the event any one
or more of such nominees should for any reason not be able to serve as a
director, the proxies will be voted for such other person or persons as may be
designated by the Board.

The names of the nominees, all of whom are currently serving as
directors of the Company, are set forth in the table below. Following the table is certain information
for at least the last five years regarding each nominee.

Name

Position with Company

Director
Since

Age

Edward R. Cameron

Chairman of the Board, Director, President and Chief Executive Officer

1976

68

Duane S. Carlson

Director

1990

72

Morgan Wolf

Director

2007

65

Thomas F. Hunt

Director

2008

58

Glynnis Jones

Director

2008

55

Edward R. Cameronis the founder and has been the President of the
Company since its inception in 1976. He
has been a director and Chairman of the Board of the Company since 1989 and
prior to 1989 was a director of a predecessor of the Company. Prior to founding the Company, Mr. Cameron
served as a district product manager and an account manager for Burroughs
Corporation (a predecessor of Unisys Corporation) and served in executive
positions for several small businesses. Mr. Cameron
has a bachelor of science degree in business administration from Montana State
University.

Duane S. Carlsonhas been a director of the Company since 1990. Mr. Carlson has been a self-employed
business consultant since 1997, as he was from 1988 to 1991. From 1991 to 1997, Mr. Carlson was executive
vice president and chief financial officer of NetStar, Inc., a company
engaged in the development, manufacturing and marketing of high-speed computer
communications equipment. He was a
founder of NetStar, Inc. and was a member of its board of directors. NetStar, Inc. became a wholly-owned
subsidiary of Ascend Communications, Inc. on August 15, 1996 and is
now part of Lucent Technologies, which acquired Ascend. He was a founder of Lee Data Corporation and
from 1979 to 1988 was employed by Lee Data Corporation (which became Carleton
Corporation and is now part of Oracle, Inc.) in various capacities, most
recently as chief financial officer and executive vice president, and was also
a member of the board of directors. Mr. Carlson
also currently serves as a director of several privately held companies.

Morgan Wolf has been a director of the Company since November 2007. Since 2005, Mr. Wolf has been a
consultant specializing in budget planning and cost analysis for small local
businesses and has provided such services to the Company since then. From 1995 to 2005 he was employed by the
Company, serving as national quality control manager from 1995 to 1997 and as
vice president of operations from 1997 to 1999.
Prior to 1995, Mr. Wolf was employed by Sears for 32 years, serving
in a variety of management positions in 8 different cities throughout the upper
Midwest including appliance management, sales promotion, store manager, and
district manager. Mr. Wolf retired
from Sears in 1994.

Thomas F. Hunt has been a
director of the Company since February 2008. From 1987 to 2007, Mr. Hunt was the
president of Medallion Capital, Inc. and Control Data Community Ventures
Fund, Inc., Medallion Capitals predecessor. He began his career as an attorney and served
as legal counsel for Control Datas venture capital group. Mr. Hunt has served on the board of
directors of several public and private companies.

Glynnis Jones has been a
director of the Company since March 2008.
Ms. Jones formerly held the positions of corporate planner, and
vice president of corporate planning with the Company from 1989

6

to 2003. In this capacity she
was responsible for developing the Companys environmental policies and
representing the Company before the California Public Utilities Commission and
state and federal environmental agencies.
Prior to joining the Company, Ms. Jones was an independent
environmental consultant and previously worked for the Metropolitan Council of
the Twin Cities, the State of Minnesota and the West Central Regional
Development Commission. From 2003 to
present, she has been an active volunteer for a local nonprofit organization.

There are no family relationships between any of the nominees,
directors or executive officers of the Company.
In addition, Duane S. Carlson, Thomas F. Hunt and Glynnis Jones, the
non-management directors of the Board, are independent directors as defined
under The NASDAQ Stock Market (NASDAQ) rules. Albin S. Dubiak, a director
since 2005 who is not standing for reelection at this years annual meeting and
whose term will expire as of May 15, 2008, is also an independent director as defined under
NASDAQ rules.

In 2007, the Board of Directors met five times. The Board of Directors has two standing
committees, the Audit Committee and the Compensation and Benefits
Committee. In 2007, the Audit Committee
met six times andthe Compensation and Benefits Committee met once. The full Board serves as a nominating
committee. The Board currently has no
other standing committees and has no current plans to establish additional
committees. Each director attended at
least 75% of the total number of meetings of the Board of Directors and of the
committees on which the director served.
It is the Companys policy that all Directors should attend the annual
meeting of shareholders.

The Compensation and Benefits Committee of the Board
of Directors (the Compensation Committee) is composed entirely of
non-employee directors Mr. Carlson, Mr. Hunt (Chairman) and Ms. Jones,
who are also independent
directors as defined under NASDAQ rules. The Compensation Committee is responsible for
review and approval of officer salaries and other compensation and benefit
programs and determination of officer bonuses.
The Compensation Committee may administer and make grants under the
Companys stock option plans.

The Compensation Committee does not operate under a
written charter. In the performance of
its duties, the Compensation Committee may select independent compensation
consultants to advise the committee when appropriate. In addition, the Compensation Committee may
delegate authority to subcommittees where appropriate.

The Compensation Committee may separately meet with management if
deemed necessary and appropriate. Annual
compensation for the Companys executive officers, other than the CEO, is
recommended by the CEO and approved by the Compensation Committee. The annual compensation for the CEO is
recommended by the Compensation Committee and formally approved by the full
Board of Directors.

The Audit Committee, comprised of Messrs. Carlson (Chair), Hunt
and Ms. Jones, is responsible for the review and approval of all
transactions in which the Company was or is to be a participant and in which
any executive officer, director or director nominee of the Company, or any
immediate family

7

member
of any such person, (related persons) has or will have a material
interest. In addition, all transactions
with related persons that come within the disclosures required by Item 404 of
the SECs Regulation S-K must also be approved by the Audit Committee. The policies and procedures regarding the
approval of all such transactions with related persons have been approved at a
meeting of the Audit Committee and are evidenced in the corporate records of
the Company.

The Board as a whole performs functions equivalent to that of a
nominating committee. In that capacity, the Board has
no written charter. Duane S.
Carlson, Thomas F. Hunt, and Glynnis Jones, the non-management directors of the
Board, are independent directors as defined under NASDAQ rules.

The Board will consider director candidates recommended by
shareholders. The criteria applied by
the Board in the selection of director candidates is the same whether the
candidate was recommended by a Board member, an executive officer, a
shareholder, or a third party, and accordingly, the Board has not deemed it
necessary to adopt a formal policy regarding consideration of candidates
recommended by shareholders.
Shareholders wishing to recommend candidates for Board membership should
submit the recommendations in writing to the Secretary of the Company.

The Board identifies director candidates primarily by considering recommendations
made by directors, management, and shareholders. The Board also has the authority to retain
third parties to identify and evaluate director candidates and to approve any
associated fees or expenses. The Board
did not retain any such third party with respect to the director candidates
described in this Proxy Statement. Board candidates are
evaluated on the basis of a number of factors, including the candidates
background, skills, judgment, diversity, experience with companies of
comparable complexity and size, the interplay of the candidates experience
with the experience of other Board members, the candidates independence or
lack of independence, and the candidates qualifications for committee
membership. The Board does not assign any
particular weighting or priority to any of these factors, and considers each
director candidate in the context of the current needs of the Board as a
whole. Director candidates recommended
by shareholders are evaluated in the same manner as candidates recommended by
other persons.

If you would like to contact the Board or any committee of the Board,
you can send an email to board@arcainc.com, or write to the Company, c/o
Secretary, 7400 Excelsior Boulevard, Minneapolis, Minnesota 55426. All communications will be compiled by the
Secretary of the Company and submitted to the Board or the applicable committee
or director on a periodic basis.

Bruce J. Wall, 53, is the Vice President of
Resource Efficiency Programs, a position he has held since October 2000. Mr. Wall is responsible for expanding
the scope of services offered to utility companies and developing programs to
provide resource efficiency benefits.
Previously, Mr. Wall was employed by the Company as a National
Account Manager from 1993 to 1997. From
1997 until rejoining the Company in 2000, Mr. Wall worked for Northeast
Energy Efficiency Partnerships, Inc., where he facilitated and managed
groups to develop, implement and evaluate regional market transformation
strategies.

Peter P. Hausback, 48, is the
Executive Vice President and Chief Financial Officer, a position he has held
since February 2008. Mr. Hausback
is responsible for the companys financial and accounting compliance and
directs the companys information systems, human resources, risk management,
and recycling operations. Mr. Hausback
began his career in public accounting with the firm Price Waterhouse and has
held various corporate finance positions, most recently serving as CFO of
Granite City Food and Brewery from October 2006 through November 2007. Mr. Hausback served as a consultant and
Vice President and Chief Accounting Officer of NightHawk Radiology Holdings, Inc.
from June 2005 to August 2006 and as Vice President and Chief
Financial Officer for WestCoast Hospitality Corporation, a provider of lodging
(Red Lion Hotels) and entertainment services, from September 2002 to February 2005. He is a CPA and holds an MBA.

Patrick Winters, 36, is the
Controller, a position he has held since January 2005. Mr. Winters assists the CFO in the
direction of the companys financial and accounting compliance, compiles and
analyzes ARCAs financial statements and manages all of the companys
day-to-day accounting operations, including billing, collections and accounts
payable. From 1998 to 2005, Winters held
the positions of Accounting Manager, General Accounting Supervisor, and
Accountant for the Company.

Bradley S. Bremer, 39, is the
Vice President of Retail Operations, a position he has held since February 2007. Mr. Bremer is responsible for directing
all aspects of the Companys retail division, including the management of
sales, marketing and operations for the Companys ApplianceSmart stores. He also oversees the planning and development
of new ApplianceSmart stores, programs and services. From 2000 to 2007, Mr. Bremer held the
position of Retail Operations Manager for the Company.

The Company uses a combination of cash and stock-based incentive
compensation to attract and retain qualified candidates to serve on the Board
of Directors. In setting director
compensation, the Company considers the significant amount of time that
directors expend in fulfilling their duties to the Company as well as the
skill-level required by the Company of members of the Board.

The Company had five directors in 2007, one of whom (Mr. Cameron)
is an executive officer of the Company and does not receive any additional
compensation for serving as a director of the Company. Non-employee directors of the Company receive
an annual fee of $15,000 for their service as directors. The Chairman of the Audit Committee receives
an additional annual fee of $3,000 and the Chairman of the Compensation and
Benefits Committee receives an additional annual fee of $1,500. All of our directors are reimbursed for
reasonable travel expenses incurred in attending our meetings. Employee
directors are not compensated for their services as directors.

Non-employee directors also receive stock options under the 2006 Stock
Option Plan. The 2006 Stock Option Plan
provides for an automatic grant to independent directors of an option to
purchase 7,500 shares of common stock on the date of the Companys annual
meeting. In addition, the 2006 Stock
Option Plan provides for an automatic one-time grant of options to purchase
7,500 shares of common stock on the date of initial election of any new
director. All such options become
exercisable in full six months after the date of grant and expire ten years
from the date of grant. The table below
presents cash and non-cash compensation paid to non-employee directors for
during the last fiscal year.

(1)These amounts reflect the expense
recognized for financial statement reporting purposes for fiscal 2007 in
accordance with SFAS No. 123R, unreduced by the estimated service-based
forfeitures.See Note 1 to the
Companys financial statements in the 2007 Annual Report on Form 10-K
mailed with this proxy statement for discussion of the assumptions made in the
valuation of option grants. At
fiscal-year-end, Mr. Carlson held options to purchase 22,500 shares of
common stock; Mr. Dubiak held options to purchase 12,500 shares of common
stock; Mr. Bednarczyk held options to purchase 12,500 shares of common
stock; and Mr. Wolf held options to purchase 2,500 shares of common stock.

The following table sets forth the cash and non-cash compensation
earned by the Chief Executive Officer, Principal Accounting Officer, and the
Vice President of Retail Operations. No
other officer of the Company received salary and bonus for any such year in
excess of $100,000. For a discussion of
the amount of salary and bonus in proportion to total compensation, as well as
other material factors related to summary compensation, please see the CD&A
on pages 9-11 of this proxy statement.

Summary Compensation Table for Fiscal Year Ended December 29,
2007

Name and Principal Position

Year

Salary ($)

Bonus ($)

Option
Awards ($)

All Other Compensation ($)

Total ($)

Edward R. Cameron

2007

$

225,000

$



$



$

15,000

(1)

$

240,000

Chairman of the
Board, President and Chief Executive Officer

2006

214,615





15,000

(1)

229,615

Bradley Bremer

2007

125,000

17,000

$

23,346

(2)



165,346

Vice President
of Retail Operations

2006

87,335

3,200





90,535

Patrick Winters

2007

120,000

8,000





128,000

Controller

2006

80,000

1,425





81,425

(1)Includes premiums paid by the Company for life
insurance for which the Company is the beneficiary.

(2)This amount reflect the expense recognized for
financial statement reporting purposes for fiscal 2007 in accordance with SFAS No. 123R,
unreduced by the estimated service-based forfeitures.See Note 1 to the Companys financial statements in the 2007
Annual Report on Form 10-K mailed with this proxy statement for discussion
of the assumptions made in the valuation of option grants.

The Company did not grant any stock options to the Chief Executive
Officer during the last two fiscal years.
In 2007, the Vice President of Retail Operations was granted options to
purchase 25,000 shares.

(1)The option was granted under the Companys
2006 Stock Option Plan on January 27, 2007 and became exercisable with
respect to 12,500 of the shares of common stock subject to the option on January 27,
2008, the one-year anniversary of the grant date. On January 27, 2009, the two-year
anniversary of the grant date, the option will be exercisable with respect to
all 25,000 shares of common stock subject to the option.

The Companys 2006 Stock Option Plan (the 2006 Plan)
was adopted by the Board of Directors in March 2006 and approved by the
shareholders at the 2006 annual meeting of shareholders. The 2006 Plan may be administered by the
Compensation Committee or the full Board of Directors acting as the
Committee. Under the 2006 Plan, the
Company has reserved an aggregate of 600,000 shares of its common stock for
option grants.

The Companys Restated 1997 Stock Option Plan (the 1997
Plan), which was adopted by the Board of Directors on March 1997 and
approved by the shareholders at the 1997 annual meeting of shareholders,
expired on March 6, 2007. Options
outstanding under the expired 1997 Plan continue to be exercisable in
accordance with their terms. As of March 14,
2008, options to purchase an aggregate of 96,000 shares were outstanding under
the 1997 Plan, including options to purchase an aggregate of 28,500 shares held
by employees and options to purchase an aggregate of 67,500 shares held by the
Companys non-employee directors. Under
the 1997 Plan, 377,250 options have been exercised.

Under the 2006 Plan, each non-employee director is
automatically granted stock options for 7,500 shares upon his or her initial
election as a director and upon each re-election by the shareholders. Each option to a non-employee director
becomes exercisable six months after the date of grant, provides for the
forfeiture of any nonexercisable portion if an optionee ceases to be a director
for certain reasons, provides that the exercisable portion may be exercised for
a period of 10 years from the date of grant, and expires on the tenth
anniversary of the date of grant. The
exercise price of an option is the fair market value of the common stock on the
date the option is granted.

Employees of the Company, including employee
directors, are eligible to receive awards of options to purchase common stock
pursuant to the 2006 Plan. The Committee
has the discretion to select eligible employees to whom awards will be granted
and establish the type, price, amount, size and terms of awards, subject in all
cases to the provisions of the 2006 Plan and the applicable provisions of the
Internal Revenue Code.

The exercise price of an incentive stock option cannot be less than
100% of the fair market value of the common stock on the date the option is
granted, except that if the optionee owns 10% or more of the voting rights of
all of the Companys stock (10% Holder), the exercise price of an incentive
stock option cannot be less than 110% of the fair market value of the common
stock on the date the option is granted.

Options granted to employees cannot be exercised prior to a set period
after their date of grant, which cannot be less than one year during which time
the optionee must remain employed by the Company. Each option specifies the expiration date,
which may not exceed 10 years from the date the option is granted, provided,
however, that if the optionee is a 10% Holder, the exercise period with respect
to incentive stock options may not exceed five years.

Unless otherwise specifically provided in an optionees agreement,
options cannot be exercised prior to the first anniversary of the date of grant
and provide for the forfeiture of any nonexercisable portion if an optionee
ceases to be an employee of the Company for any reason and that the exercisable
portion may be exercised for a period of three months after termination (or one
year in the case of death, disability or normal retirement).

The Audit Committee is responsible for relations with the Companys
independent auditors, for review of internal auditing functions (whether formal
or informal) and internal controls, and for review of financial reporting
policies to assure full disclosure of financial condition. The Audit Committee adopted, and the Board of
Directors approved, a revised written charter for the Audit Committee which was
attached as an appendix to the Companys proxy statement for the annual meeting
of shareholders held on May 4, 2006.
Mr. Carlson (Chairman), Mr. Dubiak, Mr. Hunt and Ms. Jones,
the Companys non-employee directors, serve on the Audit Committee. Each member of the Audit Committee is independent,
as independence for audit committee members is defined by NASDAQ rules, and
otherwise satisfies NASDAQ requirements for audit committee membership. The
Board has determined that Duane Carlson is an audit committee financial expert
under the Sarbanes-Oxley Act of 2002.

The Audit Committee reviewed the audited financial statements in the
Annual Report with management, including a discussion of the reasonableness of
significant judgments and accounting principles.

The Audit Committee reviewed with the independent auditors, who are
responsible for expressing an opinion on the conformity of those audited
financial statements with standards of the Public Company Accounting Oversight
Board (United States), their judgments as to the Companys accounting
principles and such other matters as are required to be discussed with the
committee under standards of the Public Company Accounting Oversight Board
(United States). In addition, the Audit
Committee has discussed with the independent auditors the auditors
independence from management and the Company, including the matters in the
written disclosures required by the Independence Standards Board.

The Audit Committee discussed with the Companys independent auditors
the overall scope and plans for their audit.
The committee meets with the independent auditors, with and without
management present, to discuss the results of their examinations, their
evaluations of the Companys internal controls, and the overall quality of the
Companys financial reporting. The committee held six meetings during 2007, five with the independent auditors and
one without the auditors present. In
addition, at the end of each quarter the chairman of the Audit Committee discussed
with the independent auditors their findings and procedures relative to the
auditors quarterly reviews.

In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors (and the Board has approved)
that the audited financial statements be included in the Annual Report on Form 10-K
for the year ended December 29, 2007 for filing with the Securities and
Exchange Commission.

March 27, 2008

The Audit Committee

Duane S. Carlson

Albin S. Dubiak

Thomas F. Hunt

Glynnis Jones

The information set forth above in the Audit Committee Report is not to
be considered filed with the SEC for any purpose or incorporated by
reference into any Securities Act or Exchange Act document of the Company for
any purpose.

This section should be read in conjunction
with the Audit Committee Report on page 12.

The Audit Committee appointed Virchow Krause &
Company, LLP as the independent registered public accounting firm for the
fiscal year that began January 1, 2007.
Virchow Krause & Company, LLP, independent certified public
accountants, also served as the independent auditors for the Company for fiscal
2005 and fiscal 2006. A representative
of Virchow Krause & Company, LLP is expected to be present at the
annual meeting, will have an opportunity to make a statement if he or she
desires to do so and will be available to respond to appropriate questions.

Virchow Krause &
Company, LLP served as the independent auditors for the Company for fiscal
2005, 2006 and 2007. McGladrey &
Pullen, LLP, independent certified public accountants, served as the
independent auditors for the Company for fiscal 2003 and 2004. During the fiscal years ended December 29,
2007 and December 30, 2006, the Company paid fees to Virchow Krause &
Company, LLP (VK) and McGladrey & Pullen, LLP and its related entity,
RSM McGladrey, Inc. (McG) for the following professional services:

December 30, 2006

December 29, 2007

Description

VK

McG

VK

McG

Audit fees (1)

$

159,390

(4)

$

28,335

$

208,664

$

19,500

Audit-related fees (2)

10,100



12,855



Tax fees (3)

21,130



18,195



All other fees









(1)Audit fees consist of fees for professional services rendered in connection with the
audit of the Companys year-end financial statements, quarterly reviews of
financial statements included in the Companys quarterly reports, services rendered relative
to regulatory filings, and attendance at Audit Committee meetings.

(2)Audit-related fees are fees principally for professional services
rendered for the audit of the Companys 401(k) employee benefit plan and
technical accounting consulting and research.

(3)Tax fees consist of compliance fees for the preparation of income tax
returns and preparation of refund claims, tax estimates and extensions.

(4)Audit fees from 2006 have been updated to
include all fees billed for the audit of the 2006 year-end financial
statements.

The Audit Committee of the Board of Directors has considered whether
the provision of the services described above was and is compatible with
maintaining the independence of Virchow Krause & Company, LLP.

The Audit Committee pre-approves all audit and permissible non-audit
services provided by the independent auditors.
All the fees for 2006 and 2007 were approved by the Audit Committee.

At the date of this proxy statement the
Companys management knows of no other matters which may come before the annual
meeting. However, if any other matters
properly come before the meeting, it is the intention of the persons named in
the enclosed proxy form to vote such proxies received by the Company in
accordance with their judgment on such matters.

A copy of the Companys 2007
Annual Report to Shareholders is being mailed to you with this proxy
statement. The Annual Report includes,
among other things, the consolidated balance sheet of the Company as of December 29,
2007 and December 30, 2006 and the related consolidated statements of
operations, shareholders equity and cash flows for the two years ended December 29,
2007. If you desire an additional copy
of the Annual Report or a copy of our Form 10-K filed with the SEC, you
may obtain one (excluding exhibits) without charge by addressing a request to
Investor Relations, Appliance Recycling Centers of America, Inc., 7400
Excelsior Boulevard, Minneapolis, Minnesota 55426. You may also access a copy of our Form 10-K
on the SECs website at www.sec.gov.

By Order of the
Board of Directors

Denis E. Grande,
Secretary

April 7, 2008

15

APPLIANCE RECYCLING CENTERS OF
AMERICA, INC.

PROXY
SOLICITED BY BOARD OF DIRECTORS
For Annual Meeting of Shareholders

The undersigned, revoking all prior proxies, hereby appoints Edward R.
Cameron and Denis E. Grande, or either of them, as Proxy or Proxies, with full
power of substitution and revocation, to vote all shares of stock of Appliance
Recycling Centers of America, Inc. standing of record in the name of the
undersigned at the close of business on March 14, 2008 at the Annual
Meeting of Shareholders to be held on May 15, 2008, or at any adjournment
or postponement of the meeting.

The undersigned hereby acknowledges receipt of the Notice of the Annual
Meeting of Shareholders of Appliance Recycling Centers of America, Inc.
and the proxy statement dated April 10, 2008 furnished with the Notice.